Q&A Hero

Q: Which one of these is a non-cash item? A.depreciation B.interest expense C.current taxes D.dividends E.selling expenses

Q: Which of the following is part of the primary objective of investing in temporary investments? a. All of these choices b. realize gains from increases in market price of the securities c. receive dividends d. earn interest revenue

Q: Assuming the number of shares outstanding remains constant, an increase in dividends per share will reduce the: A.earnings per share. B.addition to retained earnings. C.net income. D.cash flow to stockholders. E.cash flow from assets.

Q: Earnings per share will increase when: A.depreciation decreases. B.the number of shares outstanding increase. C.operating income decreases. D.dividends per share decrease. E.the average tax rate increases.

Q: A firm's dividend payments less any net new equity raised is referred to as the firm's: A.operating cash flow. B.capital spending. C.net working capital. D.cash flow from creditors. E.cash flow to stockholders.

Q: Trading securities are a. reported at fair value in the Assets section of the balance sheet and any associated unrealized gains or losses are reported in the Other Revenue (Loss) section of the income statement b. reported in the Stockholders’ Equity section of the balance sheet and any associated unrealized gains or losses are reported in the Other Revenue (Loss) section of the income statement c. reported at cost on the balance sheet and any associated unrealized gains or losses are reported as an expense against operating revenue on the income statement d. reported at fair value in the Assets section of the balance sheet and any associated unrealized gains or losses are reported as an adjustment in the Stockholders’ Equity section of the balance sheet

Q: Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to a. Investment in Vallerio Corporation Stock b. Retained Earnings c. Dividend Revenue d. Dividends Receivable

Q: Which one of these terms refers to the firm's interest payments less any net new borrowing? A.operating cash flow B.capital spending C.net working capital D.cash flow to stockholders E.cash flow to creditors

Q: In the accounting statement of cash flows, which one of these is calculated by adding back noncash expenses to net income and adjusting for changes in current assets and liabilities? A.cash flow from investing activities B.cash flow from financing activities C.net working capital D.cash flow from operating activities E.cash flow to investors

Q: Armando Company owns 17,000 of the 70,000 shares of common stock outstanding of Tito Company and exercises a significant influence over its operating and financial policies. The investment should be accounted for by the a. equity method b. fair value method c. consolidation method d. fair value or equity method

Q: Operating cash flow is defined as: A.Pretax income - Taxes. B.Net income - Dividends. C.EBIT + Depreciation - Taxes. D.Pretax income + Depreciation. E.Cash flow to investors + Taxes.

Q: Capital spending is equal to: A.ending next fixed assets minus beginning net fixed assets. B.ending net fixed assets minus beginning net fixed assets plus depreciation. C.ending total assets minus beginning total assets. D.ending total assets minus beginning total assets minus depreciation. E.beginning total assets plus asset purchases minus asset sales.

Q: Yankton Company began the year without an investment portfolio. During the year, it purchased investments classified as trading securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. Yankton Company's financial statements for the current year should show a. a realized loss of $2,000 on the income statement and net trading investments of $13,000 on the balance sheet b. no loss on the income statement and net trading investments of $13,000 on the balance sheet c. no loss on the income statement, net trading investments of $11,000, and an unrealized loss of $2,000 as a stockholders’ equity adjustment on the balance sheet d. an unrealized loss of $2,000 on the income statement and net trading investments of $11,000 on the balance sheet

Q: The cash flow resulting from a firm's ongoing, normal business activities is referred to as the: A.operating cash flow. B.net capital spending. C.additions to net working capital. D.cash flow to retained earnings. E.cash flow to investors.

Q: Temporary investments a. are reported as current assets b. include cash equivalents c. do not include equity securities d. include cash used to expand current operations

Q: U.S. corporate taxes switch to a constant flat-rate tax once the average tax rate reaches: A.32 percent. B.33 percent. C.28 percent. D.40 percent. E.35 percent.

Q: Ruben Company purchased $100,000 of Evans Company bonds at 100. Ruben later sold the bonds for $104,500 plus $500 in accrued interest. The journal entry for the sale of the bonds would be a. debit Cash, $105,000; credit Investments—Evans Company Bonds, $104,500, and Interest Revenue, $500 b. debit Cash, $105,000; credit Investments—Evans Company Bonds, $100,000, and Gain on Sale of Investments, $5,000 c. debit Cash, $104,500, and Interest Receivable, $500; credit Investments—Evans Company Bonds, $100,000, Gain on Sale of Investments, $4,500, and Interest Revenue, $500 d. debit Cash, $105,000; credit Investments—Evans Company Bonds, $100,000, Gain on Sale of Investments, $4,500, and Interest Revenue, $500

Q: Which term defines the tax rate that applies to the next dollar of taxable income earned? A.deductible B.residual C.total D.average E.marginal

Q: The fair value method of accounting for stock a. recognizes dividends as income b. is only appropriate as part of a consolidation c. requires the investment to be increased by the reported net income of the investee d. requires the investment to be decreased by the reported net income of the investee

Q: For a firm with long-term debt, net income is equal to: A.Pretax income - Interest expense - Taxes. B.EBIT - Taxes. C.Taxes + Addition to retained earnings. D.Pretax income (1 - Marginal tax rate). E.Dividends + Addition to retained earnings.

Q: A company whose stock is more than 50% owned by another company is called the a. controlling company b. investee company c. subsidiary company d. sibling company

Q: Noncash items refer to: A.the credit sales of a firm. B.the accounts payable of a firm. C.the costs incurred for the purchase of intangible fixed assets. D.expenses charged against revenues that do not directly affect cash flow. E.all accounts on the balance sheet other than cash on hand.

Q: The financial statement summarizing a firm's accounting performance over a period of time is the: A.income statement. B.balance sheet. C.statement of cash flows. D.tax reconciliation statement. E.statement of equity.

Q: Which of the following stock investments should be accounted for using the fair value method? a. investments of less than 20% ownership b. investments between 20% and 50% ownership c. all investments of less 50% ownership d. investments of over 50% ownership

Q: An asset that can be quickly converted into cash without significant loss in value is referred to as being: A.marketable. B.tangible. C.intangible. D.liquid. E.fixed.

Q: Equity securities include a. preferred stock b. notes c. bonds d. bank deposits

Q: Net working capital is defined as: A.current assets plus fixed assets. B.current assets plus stockholders' equity. C.fixed assets minus long-term liabilities. D.total assets minus total liabilities. E.current assets minus current liabilities.

Q: Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the a. parent company b. minority interest c. affiliate company d. subsidiary company

Q: On a balance sheet, deferred taxes are classified as: A.stockholders' equity. B.a current asset. C.a long-term liability. D.a fixed asset. E.a current liability.

Q: Which of the following is not a reason to invest excess cash in temporary investments? a. earn interest revenue b. influence the operations of another company c. receive dividends d. realize gains from the increase in market value of the securities

Q: Which one of these accounts is classified as a current asset on the balance sheet? A.intangible asset B.accounts payable C.preferred stock D.inventory E.net plant and equipment

Q: Which one of these equations is an accurate expression of the balance sheet? A.Assets Liabilities Stockholders' equity B.Stockholders' equity Assets + Liabilities C.Liabilities Stockholders' equity Assets D.Assets Stockholders' equity Liabilities E.Stockholders' equity Assets Liabilities

Q: Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock and $4 per share on its $20 par common stock. The market value of the common stock is $80 per share. Edison’s dividend yield is a. 5% b. 10% c. 25% d. 20%

Q: Explain the difference between product costs and period costs as they relate to the income statement. Are these terms synonymous with short-run and long -run?

Q: The account Unrealized Gain (Loss) on Trading Investments should be included on the a. income statement in the Other Revenue and Expense section b. balance sheet as an adjustment to the asset account c. balance sheet as an adjustment to stockholders' equity d. statement of retained earnings

Q: Why is cash flow management important?

Q: Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a a. credit to Cash for $9,000 b. debit to the investment account for $9,000 c. credit to the investment account for $9,000 d. credit to a loss account for $9,000

Q: Interpret, in words, what cash flow of the firm represents by discussing operating cash flow, changes in net working capital, and additions to fixed assets. Operating cash flow is the cash flow a firm generates from its day-to-day operations. In other words, it is the cash inflow generated as a result of putting the firm's assets to work. Changes in net working capital and fixed assets represent investments a firm makes in these assets. That is, a firm typically takes some of the cash flow it generates from using assets and reinvests it in new assets. Cash flow of the firm, then, is the cash flow a firm generates by employing its assets, net of any acquisitions. <i>

Q: Financial statements in which financial data for two or more companies are combined as a single entity are called a. conventional statements b. consolidated statements c. audited statements d. constitutional statements

Q: Sometimes when businesses are critically delinquent on their tax liabilities, the tax authority comes in and literally seizes the business by chasing all of the employees out of the building and changing the locks. What does this tell you about the importance of taxes relative to our discussion of cash flow? Why might a business owner want to avoid such an occurrence?

Q: GAAP requires trading and available-for-sale investments to be reported at their a. fair value b. historical cost c. market value d. net realizable value

Q: Depreciation is classified as a noncash item because no cash is spent when depreciation is recorded. Why are expenses that have been accrued, but not yet paid, not also considered to be noncash items and therefore excluded from operating cash flow just as depreciation is excluded?

Q: Note that in all of our cash flow computations to determine cash flow of the firm, we never include the addition to retained earnings. Why not? Is this an oversight?

Q: In general, consolidated financial statements should be prepared a. when a corporation owns more than 20% and less than 40% of the common stock of another company b. when a corporation owns more than 50% of the common stock of another company c. only when a corporation owns 100% of the common stock of another company d. whenever the market value of the stock investment is significantly lower than its cost

Q: Discuss the difference between book values and market values on the balance sheet and explain the best method for determining the value of a firm to its stockholders. The accounts on the balance sheet are generally carried at historical cost, not market values. Although the book value of current assets and current liabilities may closely approximate market values, the same cannot be said for the rest of the balance sheet accounts. Ultimately, stockholders should focus on the firm's stock price, which is a market value measure, for the value of their investment in the firm. <i>

Q: Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of $2,000 from Kennedy Company on March 1. The bonds have an annual interest rate of 6% payable on June 30 and December 31. The entry for the purchase of the bonds would include a a. debit to Interest Receivable for $2,000 b. debit to Investments—Kennedy Company Bonds for $202,000 c. debit to Cash for $200,000 d. credit to Interest Revenue for $2,000

Q: Explain why the income statement is not a good representation of cash flow. Most income statements contain some noncash items, so these must be accounted for when calculating cash flows. More importantly, however, since GAAP is used to create income statements, revenues and expenses are booked when they accrue, not when their corresponding cash flows occur. <i>

Q: Why is interest expense excluded from the operating cash flow calculation?

Q: Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semiannually. The journal entry for the purchase would be a. debit Investments—Evans Company Bonds, $101,500; credit Cash, $101,500 b. debit Investments—Evans Company Bonds, $100,000; credit Interest Revenue, $1,500, and Cash, $98,500 c. debit Investments—Evans Company Bonds, $100,000, and Interest Receivable $1,500; credit Cash, $101,500 d. debit Investments—Evans Company Bonds, $100,000; credit Cash, $100,000

Q: When shares of stock held as an investment are sold, the difference between the proceeds and the carrying amount of the investment is recorded as a(n) a. prior period adjustment b. operating income and loss c. paid-in capital addition d. gain or loss

Q: Define liquidity and explain what a firm would need to do to ensure all of the current assets displayed on its balance sheet are liquid. Liquid assets are those that can be sold quickly with little or no loss in value. To ensure the current assets are liquid, the firm needs to review its accounts receivable to ensure the accounts are collectible and also review its inventory to ensure it is salable for at least the amount at which it is recorded. <i>

Q: Which of the following items would not affect the investor's income for the period? a. interest received on a temporary investment in bonds b. dividends received on a long-term investment in stock where the investor owns 10% of the investee's stock c. dividends received on a long-term investment in stock where the investor owns 30% of the investee's stock d. interest received on a long-term investment in bonds

Q: Oscar's Dog Treats had a cash flow to creditors of $2,840, a cash flow to stockholders of $1,630 last year. The firm spent a net of $1,420 on fixed assets and reduced net working capital by $330. What was the operating cash flow? A.$6,190 B.$5,560 C.$3,500 D.$1,320 E.$4,9001

Q: Deep Water Mining added $411 to retained earnings last year on sales of $24,646. The administrative expenses were $4,370, depreciation was $812, dividends paid were $285, and the interest expense was $103. What was the cost of goods sold if the firm's tax rate was 35 percent? A.$20,225 B.$24,385 C.$18,290 D.$14,815 E.$21,393

Q: Debt securities include a. preferred stock b. common stock c. notes and bonds d. All of these choices

Q: The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the a. cost method b. fair value method c. income method d. equity method

Q: Last year, Webster Farms had annual revenue of $87,200, depreciation of $11,600, cost of goods sold of $54,700, and administrative expenses of $8,300. The firm paid $3,200 in dividends and paid taxes of $4,300. What was the operating cash flow? A.$11,500 B.$8,300 C.$23,100 D.$19,900 E.$16,700

Q: Which of the following statements is not a reason a company may purchase another company's stock? a. earning a return on excess cash b. sustaining the other company's stock price c. gaining control of another company's operations d. developing or maintaining business relationships

Q: Last year, Johnson Mills had annual revenue of $37,800, cost of goods sold of $23,200, and administrative expenses of $6,300. The firm paid $700 in dividends and had a tax rate of 35 percent. The firm added $2,810 to retained earnings. The firm had no long-term debt. What was the depreciation expense? A.$2,300 B.$1,520 C.$2,640 D.$1,780 E.$2,900

Q: Gale Company owns 87% of the outstanding stock of Leonardo Company. Leonardo Company is referred to as the a. parent company b. minority interest c. affiliate company d. subsidiary company

Q: New Town Industries Tax rate 35% 2015 2014 Revenues $42,629 $37,911 Cost of goods sold 23,704 24,832 Interest 1,230 1,584 Dividends 1,200 600 Depreciation 2,609 2,814 Administrative expenses 7,040 6,820 Cash 3,671 2,969 Inventory 3,968 4,503 Accounts payable 2,325 3,760 Long-term debt 19,105 25,900 Accounts receivable 4,601 5,318 Common stock 22,600 19,800 Net fixed assets 41,260 42,110 What is the cash flow to stockholders for 2015? A. $1,200 B. "$2,800 C. $1,520 D. "$1,600 E.

Q: An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the amount of gain or loss on the sale? a. $12,750 gain b. $600 gain c. $600 loss d. $9,250 loss

Q: New Town Industries Tax rate 35% 2015 2014 Revenues $42,629 $37,911 Cost of goods sold 23,704 24,832 Interest 1,230 1,584 Dividends 1,200 600 Depreciation 2,609 2,814 Administrative expenses 7,040 6,820 Cash 3,671 2,969 Inventory 3,968 4,503 Accounts payable 2,325 3,760 Long-term debt 19,105 25,900 Accounts receivable 4,601 5,318 Common stock 22,600 19,800 Net fixed assets 41,260 42,110 What is the cash flow to creditors for 2015? A.$1,230 B.$8,025 C.$9,135 D.$5,565 E.$2,705

Q: For accounting purposes, the method used to account for investments in common stock is determined by a. the amount paid for the stock by the investor b. whether the acquisition of the stock by the investor was "friendly" or "hostile" c. the extent of an investor's influence over the operating and financial affairs of the investee d. whether the stock has paid dividends in past years

Q: New Town Industries Tax rate 35% 2015 2014 Revenues $42,629 $37,911 Cost of goods sold 23,704 24,832 Interest 1,230 1,584 Dividends 1,200 600 Depreciation 2,609 2,814 Administrative expenses 7,040 6,820 Cash 3,671 2,969 Inventory 3,968 4,503 Accounts payable 2,325 3,760 Long-term debt 19,105 25,900 Accounts receivable 4,601 5,318 Common stock 22,600 19,800 Net fixed assets 41,260 42,110 What is net new borrowing for 2015? A.$6,795 B.-$5,565 C.$8,025 D.-$6,795 E.$5,565

Q: The equity method of accounting for investments requires a. a year-end adjustment to revalue the stock to lower of cost or market b. the investment to be reported at its original cost c. the investment to be increased by the reported net income of the investee d. the investment to be increased by the dividends paid by the investee

Q: New Town Industries Tax rate 35% 2015 2014 Revenues $42,629 $37,911 Cost of goods sold 23,704 24,832 Interest 1,230 1,584 Dividends 1,200 600 Depreciation 2,609 2,814 Administrative expenses 7,040 6,820 Cash 3,671 2,969 Inventory 3,968 4,503 Accounts payable 2,325 3,760 Long-term debt 19,105 25,900 Accounts receivable 4,601 5,318 Common stock 22,600 19,800 Net fixed assets 41,260 42,110 What is the cash flow of the firm for 2015? A.$885 B.$8,042 C.$7,297 D.$6,425 E.$5,517

Q: Temporary investments such as in trading securities are a. recorded at cost but reported at fair market value b. recorded at cost and reported at cost c. recorded at cost but reported at lower of cost or fair market value d. recorded at fair market value and reported at fair market value

Q: New Town Industries Tax rate 35% 2015 2014 Revenues $42,629 $37,911 Cost of goods sold 23,704 24,832 Interest 1,230 1,584 Dividends 1,200 600 Depreciation 2,609 2,814 Administrative expenses 7,040 6,820 Cash 3,671 2,969 Inventory 3,968 4,503 Accounts payable 2,325 3,760 Long-term debt 19,105 25,900 Accounts receivable 4,601 5,318 Common stock 22,600 19,800 Net fixed assets 41,260 42,110 What is the operating cash flow for 2015? A.$6,460 B.$9,069 C.$10,325 D.$3,753 E.$12,408

Q: New Town Industries Tax rate 35% 2015 2014 Revenues $42,629 $37,911 Cost of goods sold 23,704 24,832 Interest 1,230 1,584 Dividends 1,200 600 Depreciation 2,609 2,814 Administrative expenses 7,040 6,820 Cash 3,671 2,969 Inventory 3,968 4,503 Accounts payable 2,325 3,760 Long-term debt 19,105 25,900 Accounts receivable 4,601 5,318 Common stock 22,600 19,800 Net fixed assets 41,260 42,110 What is net capital spending for 2015? A. -$850 B. $1,759 C. $311 D. $2,057 E.

Q: New Town Industries Tax rate 35% 2015 2014 Revenues $42,629 $37,911 Cost of goods sold 23,704 24,832 Interest 1,230 1,584 Dividends 1,200 600 Depreciation 2,609 2,814 Administrative expenses 7,040 6,820 Cash 3,671 2,969 Inventory 3,968 4,503 Accounts payable 2,325 3,760 Long-term debt 19,105 25,900 Accounts receivable 4,601 5,318 Common stock 22,600 19,800 Net fixed assets 41,260 42,110 What is the addition to retained earnings for 2015? A. $4,030 B. $4,630 C. $3,700 D. $4,900 E.

Q: The market price that would be received for a security if it were sold is the a. fair value b. test value c. investing value d. historical value

Q: New Town Industries Tax rate 35% 2015 2014 Revenues $42,629 $37,911 Cost of goods sold 23,704 24,832 Interest 1,230 1,584 Dividends 1,200 600 Depreciation 2,609 2,814 Administrative expenses 7,040 6,820 Cash 3,671 2,969 Inventory 3,968 4,503 Accounts payable 2,325 3,760 Long-term debt 19,105 25,900 Accounts receivable 4,601 5,318 Common stock 22,600 19,800 Net fixed assets 41,260 42,110 What is the net working capital for 2015? A. $11,45 B. $12,240 C. $4,955 D. $9,915 E.

Q: Which of the following is not a part of comprehensive income? a. foreign currency adjustments b. cash flows from stock investments c. unrealized gains and losses on available-for-sale securities d. pension liability adjustments

Q: Woodlands Inc. 2015 Income Statement ($ in millions) Total operating revenues $3,806 Cost of goods sold 2,315 Selling, general, and administrative expenses 546 Depreciation 311 Earnings before interest and taxes (EBIT) $634 Interest expense 170 Pretax income $464 Taxes 162 Net income $302 Dividends 75 Woodlands Inc. Balance Sheet ($ in millions) Assets 2015 2014 Liabilities and Stockholders' Equity 2015 2014 Cash and equivalents $ 503 $ 227 Accounts payable $ 686 $ 613 Accounts receivable 418 522 Long-term debt 1,300 1,350 Inventory 1,239 1,187 Common stock 1,500 1,500 Net property & equipment 2,290 2,264 Capital surplus 745 745 Intangible assets 360 360 Retained earnings 579 352 Total assets $ 4810 $4,560 Total liabilities & stockholders' equity $4,810 $4,560 What is the cash flow to creditors for 2015? A.$120 million B.$50 million C.$120 million D.$220 million E.$170 million

Q: The valuation allowance for the trading investments account is found on the a. income statement in the Other Revenue and Expense section b. balance sheet as an adjustment to the asset account c. balance sheet as an adjustment to stockholders' equity d. statement of retained earnings

Q: Long-term investments that involve the purchase of a significant portion of the stock of another company may be held for a strategic purpose, such as a. the receipt of dividends b. expansion into new markets c. the gains from the increase in market value d. the receipt of interest revenue

Q: Woodlands Inc. 2015 Income Statement ($ in millions) Total operating revenues $3,806 Cost of goods sold 2,315 Selling, general, and administrative expenses 546 Depreciation 311 Earnings before interest and taxes (EBIT) $634 Interest expense 170 Pretax income $464 Taxes 162 Net income $302 Dividends 75 Woodlands Inc. Balance Sheet ($ in millions) Assets 2015 2014 Liabilities and Stockholders' Equity 2015 2014 Cash and equivalents $ 503 $ 227 Accounts payable $ 686 $ 613 Accounts receivable 418 522 Long-term debt 1,300 1,350 Inventory 1,239 1,187 Common stock 1,500 1,500 Net property & equipment 2,290 2,264 Capital surplus 745 745 Intangible assets 360 360 Retained earnings 579 352 Total assets $ 4810 $4,560 Total liabilities & stockholders' equity $4,810 $4,560 What is the cash flow to stockholders for 2015? A.$152 million B.$25 million C.$0 D.$25 million E.$75 million

Q: Woodlands Inc. 2015 Income Statement ($ in millions) Total operating revenues $3,806 Cost of goods sold 2,315 Selling, general, and administrative expenses 546 Depreciation 311 Earnings before interest and taxes (EBIT) $634 Interest expense 170 Pretax income $464 Taxes 162 Net income $302 Dividends 75 Woodlands Inc. Balance Sheet ($ in millions) Assets 2015 2014 Liabilities and Stockholders' Equity 2015 2014 Cash and equivalents $ 503 $ 227 Accounts payable $ 686 $ 613 Accounts receivable 418 522 Long-term debt 1,300 1,350 Inventory 1,239 1,187 Common stock 1,500 1,500 Net property & equipment 2,290 2,264 Capital surplus 745 745 Intangible assets 360 360 Retained earnings 579 352 Total assets $ 4810 $4,560 Total liabilities & stockholders' equity $4,810 $4,560 What is the cash flow of the firm for 2015? A.$295 million B.$485 million C.$1,340 million D.$590 million E.$310 million

Q: Jenson Co. is considering the following alternative plans for financing the company: Plan 1Plan 2Issue 10% bonds (at face)—$2,000,000Issue $10 common stock$3,000,000 1,000,000​Income tax is estimated at 40% of income.Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.